Aug 16 (Reuters) - Sterling touched a three-week high on Friday as retail sales data added to signs of positive momentum in the UK economy, with gains underpinned by a broad recovery in risk appetite.

Data showed British retail sales edged up 0.5% in July, boosted in part by extra spending due to the men's Euros soccer championship, following a 0.9% drop in June when an unusually cool and wet weather had kept shoppers away.

That follows data showing UK gross domestic product grew 0.6% in the second quarter of 2024, in-line with economists' expectations.

The pound climbed 0.4% against the dollar to $1.2904 on Friday - its strongest level since July 25. The currency was last up 1.2% on the week, on track for its biggest weekly rise in more than a month.

The Bank of England cut interest rates from a 16-year high this month and Britain's longest-running consumer confidence measure rose to its highest in nearly three years as shoppers became more willing to make big purchases.

Signs of resilience in the economy and tame inflation readings have prompted traders to price in fewer interest rate cuts from the Bank of England than are expected from the Federal Reserve, supporting the currency.

Traders see 43 basis points of rate cuts from the BoE this year and are pricing in a 37% chance of a 25-bps cut at the central bank's September meeting. They see nearly 62 bps of rate cuts from the Fed by the end of 2024.

"From a monetary policy point of view this week's data has not altered our call for one more 25bp reduction this year, likely in November," Investec economist Ellie Henderson said.

"There is always the risk that the MPC collectively might think it appropriate to do more, particularly if the data were to turn and the risk of inflation undershooting the target to grow, but the economic releases this week do not suggest we are at that point."

Euro/sterling fell to a two-week low at 85.18 pence.

Meanwhile, encouraging U.S. economic data this week lifted stocks markets around the globe on Friday after worries about a U.S. recession had sparked a sell-off earlier this month.

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https://www.reuters.com/markets/currencies/sterling-climbs-3-week-high-data-recovering-sentiment-2024-08-16/